Look Beyond Headline Names and Profit with Key Suppliers

The stock market usually moves higher due to just a handful of companies. Today, that’s centered around big-cap tech stocks working on artificial intelligence (AI) programs. In time, that may change.

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  • But while big names get the attention, companies that provide key services and supplies can also be big winners. That’s especially true after the big names have gotten the market’s attention and have run higher. Investing in suppliers can also provide useful signals as to the health of the economy.

    For instance, construction supply distributor company Fastenal (FAST) just beat on earnings. That’s a sign that the economy is holding up well, as construction is highly cyclical to the overall economy.

    Fastenal is a “slow and steady” type stock that can provide decent returns over time, even if it’s as exciting as a tech stock. Revenues and earnings grew by single-digits in the past year, but the company has been consistent about those moves in the long-term.

    Action to take: Although the earnings beat has taken shares to a 52-week high, there’s likely some more upside in the months ahead. Investors can also get a 2.5 percent dividend yield, with a history of payout growth behind it.

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  • For traders, the momentum is to the upside. The January 2024 $65 calls, last going for about $0.85, could see mid-to-high double-digit gains on a further rally for this “slow and steady” business.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.